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. Last Updated: 07/27/2016

Russia Outlines Terms Of $4.5Bln IMF Deal




Russia's loan negotiating team brought its shiny new $4.5 billion loan agreement with the IMF back home Friday, but the government's self-congratulatory mood could soon be spoiled as it faces up to looming fights at home and abroad.


Although the program Russia signed Thursday in Washington with the International Monetary Fund is stingy, it could well force the government of Prime Minister Yevgeny Primakov to take several much-needed steps to fix its shattered economy.


At a press conference held to announce the results of their trip to Washington, First Deputy Prime Minister Yury Maslyukov and Finance Minister Mikhail Zadornov outlined the measures to be carried out to enable disbursements of IMF loans this year.


"In total, revenues will be up 2.5 percent of [gross domestic product] on a yearly basis," Zadornov said.


Excise taxes on high octane gasoline will be raised by 20 to 30 percent.


"This will bring in additional 4 billion rubles to both federal and regional budgets," said Maslyukov.


The government has also committed itself to retaining Value Added Taxation at 20 percent this year after having earlier moved to reduce it to 15 percent. This will bring in 25 billion rubles ($1 billion) more to the budget, Zadornov said, adding that export duties will bring in a further 30 billion rubles ($1.2 billion) by year end.


Last year budget revenues amounted to 9 percent of the GDP. In the first quarter of the year they totaled 10.9 percent.


"If we increase budget revenues by another 0.5 percent of GDP, we will be able to show a primary budget surplus upon which we agreed," said Zadornov.


But the government must first force the legislative program it has committed itself to through a hostile parliament before taking on Germany, which is determined not to cut Russia an easy deal on its multibillion-dollar Soviet-era debts.


Germany has long been alarmed by Russian statements that it will be unable to fully service its debt commitments for at least 10 years, while the State Duma is objecting to being asked to sign off on unpopular price hikes in an election year.


"We will do everything possible so that such initiatives do not pass the Duma," Gennady Zyuganov, the head of Russia's Communist Party, thundered Friday in reference to the increases in duties for alcohol and gasoline that are included in the IMF deal.


The measures are aimed at raising revenues, which Russia must do before the IMF will release any of the funds agreed under the program.Abroad, Russia is moving to renegotiate some $100 billion of Soviet-era debt.


Russia will start negotiations on rescheduling debt payments with the London and Paris clubs immediately after the IMF approves its economic program at the meeting of the board in June, Finance Minister Zadornov said Friday.


First Deputy Prime Minister Maslyukov claimed that multilateral agencies supported Russia's decision not to pay Soviet-era debts.


"There is full support of the strategy of debt service chosen by us last fall," said Maslyukov.


Russia stopped servicing debts inherited from the Soviet Union in August 1998 and has missed $2 billion in payments. It was to pay $8 billion both this year and next on its Soviet-era debt.


Russia will not be able to service all of its foreign debts for another 10 years, Zadornov said Friday. "Even if we run a budget surplus of 3 to 3.5 percent of the GDP, we will not be able to service debts to London and Paris clubs," he said.